Retirees’ Health Care Costs Far Outpace Social Security COLA
Two recent reports spell out how rising health care costs are impacting retirees and employers.
Health care costs are accelerating in 2026, straining both employer-sponsored health plans and retirees’ budgets, as new data show double-digit premium increases for group plans and long-term retirement health care inflation projected to more than double the pace of Social Security cost-of-living adjustments.
Employers renewing fully insured health plans for 2026 are facing average premium increases of 18% to 25%, with some groups seeing hikes exceeding 60%, according to the USI 2026 Employee Benefits Market Outlook. At the same time, pharmacy costs continue to surge, with specialty drugs now accounting for more than half of all prescription drug spending, according to the report.
USI Insurance Services attributed the spike in the annual cost of renewals is being driven by rising claims volume and higher-cost large claims, more aggressive provider reimbursement contracts, increased demand for high-cost medications such as GLP-1 drugs and gene therapies and growing behavioral health utilization.
Pharmacy benefit managers, for one, have recently drawn the ire of federal regulators. That has increased pressure on employer health plan sponsors, which have a fiduciary duty to closely examine their PBM arrangements. This urgency follows Congress’s inclusion of new PBM accountability measures in the federal latest spending law, as well as a proposed regulation from the Department of Labor.
Social Security Benefits Mostly Health Care
While employers grapple with escalating plan costs and recent PBM scrutiny, retirees are also contending with health care inflation that continues to outstrip annual Social Security increases, data show.
The 2026 Retirement Healthcare Costs Data Report from HealthView Services projects a long-term health care inflation rate of 5.8%, compared with projected Social Security COLAs of 2.4%. In 2026, Medicare Part B and Medicare Advantage premiums deducted from Social Security rose 9.7%, while the Social Security COLA was 3.2%, according to the report.
For a healthy 65-year-old couple retiring this year, lifetime health care costs are projected to total $661,812 in today’s dollars, or $955,411 in future value, according to HealthView. The firm estimates that 84% of lifetime Social Security benefits for such a couple will be needed to cover health care expenses; for younger couples, that share rises to 104% or even 129% of their expected Social Security benefits.
The report also highlights disproportionate impacts on women, who tend to live longer, receive lower Social Security benefits and incur higher lifetime health care costs.